Glossary of terms

...

Consolidated accounts. The purpose of consolidated accounts is to present the financial situation of a group of companies as if they formed one single entity. (French equivalent: Comptes consolidés)

Cost of capital. It is the Rate of return required by Shareholders and Creditors to finance the company's Investment projects. Therefore, it reflects the cost of its equity that is added to the cost of its debt. (French equivalent: Coût du capital)

Credit scoring. An analytical technique used for carrying out a pre-emptive check-up of a company that consists of two steps. First, some ratios are calculated as representative (e.g. up to three years ahead) of potential difficulties for a given company. Once they have been established, they are cross-checked against the values obtained for companies that are known to have run into problems or have failed. The ratios are combined in a Z-score that yields a score for each company. (French equivalent: Scoring)

Creditworthiness. Creditworthiness measures the extent to which a Debtor is deemed to be capable of paying Interests and repaying the Principal on the due dates. (French equivalent: Solvabilité)

Current Assets. Current Assets include Inventories, Accounts Receivables, Marketable securities and cash. (French equivalent: Actif circulant à moins d’un an)

Current Liabilities. Current Liabilities include Accounts Payables and short-term financial borrowings (due in less than one year). (French equivalent: Passifs courant à moins d’un an)

Current ratio. Current (liquidity) ratio measures whether the Assets to be quickly converted into cash exceed the debts to be paid in less than one year. It is the division of Current assets (less than one year) by Current liabilities (less than one year). If it is above 1, it is considered to protect creditors from the uncertainty of the Assets' monetization. (French equivalent: Ratio de liquidité générale)

D

Days' inventory ratio. Days' inventory ratio is calculated by dividing Inventories and work in process by average daily Sales (VAT exclusive). If information is available, the turnover ratios should be calculated in Days of raw material ratio, Days of goods held for resale ratio, Days of finished goods inventory ratio, and Days of work-in-process ratio. (French equivalent: Raio de rotation des stocks)

Days' payables ratio. Days' payables ratio measures the average payment terms granted to the company by its suppliers (or the average actual payment period). It is calculated by dividing the amount of Accounts payable by the average amount of daily Purchases (VAT inclusive) or by Sales, if the amount of Purchases is not shown in the accounts. (French equivalent: Ratio de délai fournisseurs)

Days' receivables ratio. Days' receivables ratio measures the average payment terms (or period) the company grants to its customers. It is calculated by dividing the amount of Receivables by the amount of average daily Sales (VAT inclusive). (French equivalent: Ratio de délai clients)

Depreciation. Depreciation is the accounting recognition of the loss in Value of a Tangible fixed asset due to its use and obsolescence (because of technological advances in the industry. Depreciation is a "non-cash" charge insofar as it reflects accounting assessments of the loss in Value. (French equivalent: dépreciation d’actifs)

Dividend cover. Dividend cover is the ratio that divides the company's net Earnings by the dividends paid. (French equivalent: Ratio de couverture des dividendes)

Downgrade. Downgrade refers to the downward revision of a Rating (e.g. a corporate Bond which used to be rated A- is now BBB+ rated by S&P). (French equivalent: Dégradation de la notation de crédit)

E

Earnings before interest and taxes (EBIT). EBIT or the operating profit represents cash available to pay off creditors in the event of liquidation. As such, it is closely watched, especially when the company incurs little depreciation or amortization. (French equivalent: Résultat d'exploitation (RE))

Earnings before interest, tax, depreciation and amortisation (EBITDA). EBITDA or Gross operating profit is equal to the balance of Operating revenues and cash Operating charges incurred to obtain such Revenues. (French equivalent: Excédent brut d'exploitation (EBE))

F

Factoring. Factoring companies are specialised in mobilising a part of the Receivables, which they discount (Discounting of bills of exchange) or buy and handle the recovery of Bad debts in exchange for a commission. Very often, the receivable do not remain on the Balance sheet of the company. (French equivalent: Affacturage)

Financial analysis. Using economic and accounting information, financial analysis aims at discovering a company's real situation, based on coded data. It also makes it possible to make a full assessment of the analysed company and its Future prospects. On a practical level, techniques include Common Size Analysis, Trend analysis, Comparative analysis (Benchmarking), Normative analysis. (French equivalent: Analyse finacière)

Financial distress costs. Financial distress costs are the costs related to Financial distress, i.e. the difficulty that a firm has in meeting its Debt obligations and the consequences of these difficulties. Costs include not only the possibly increased Cost of debt, but also the opportunities of profitable investments foregone due to the inability to raise new funding, Revenues lost due to R&D cuts, etc. (French equivalent: coût lié à des difficultés financières)

Financial expense. Financial expenses are: Interest charges; foreign exchange losses on Debt; net expense on the Disposal of Marketable securities; Amortisation of bond redemption premiums; additions to provisions for financial Liabilities; Charges and Impairment losses on investments. (French equivalent: charges financières)

Financial income. Financial income is the revenue generated by the temporary surplus cash invested in short-term investments and Marketable securities. It also includes foreign exchange gains on Debt and write-backs on provisions and Charges related to financial operations. (French equivalent: Résultat financier)

Financing cycle. Financing cycle covers the period from raising Financial resources to their repayment. This cycle includes capital increases in cash, the payment of dividends (i.e. payment out of the previous year's Net profit) and Share buy-backs, change in Net debt resulting